Vendor due diligence is an essential part of your company’s risk management responsibilities, often being just as important as customer due diligence checks, transaction monitoring and the submission of suspicious activity reports (SARs).
Put simply, vendor due diligence is the process by which a company assesses the suitability and trustworthiness of a service provider before choosing to work with them. This process is carried out to ensure that the new partner will pose no future risk to the reputation and legitimacy of your own company.
At SmartSearch, we offer several ingenious tools that help you to carry out your VVD responsibilities efficiently and effectively, from robust identity verification solutions to comprehensive PEP screening. But before you explore the rest of our market-leading platform, explore below how VVD can be implemented and why it’s so important.
From ensuring that you’re complying with legal requirements to protecting the fundamentals of your own company, VDD is essential. By knowing the business practices of your vendors inside out, you can be in a better position to make informed decisions regarding your relationship, protecting your company in the long term.
The complete VDD process involves a comprehensive assessment of the relevant service provider, checking everything from historic financial records to any potential security risks that could have a knock-on effect on your company.
Assessing a supplier’s financial health can be achieved in a number of different ways and should begin with the gathering of relevant documents such as tax reports, business plans and necessary licences. Audited financial statements should be reviewed to create a comprehensive impression of the supplier’s cash flow as well as any debt obligations, allowing you to create a vivid profile.
Creditworthiness should also be considered. Credit scores and payment history should, therefore, be assessed with a low score signalling doubts that the provider may be inconsistent in their efficient delivery going forward. Conducting these background checks should be considered the start of your VDD process.
When forging a new relationship with a service provider, you need to ensure that they are compliant with industry standards in order for you to create a reliable, efficient supply chain. For example, it should be verified that the supplier is compliant with relevant trade regulation laws as well as industry-specific security standards, such as the requirement for safety regulations in the cryptocurrency industry, known as the CryptoCurrency Security Standard (CCSS).
Next, verify that the supplier and any associated personnel are not on any sanctions or Politically Exposed Persons (PEP) lists, since associating yourself with such individuals can pose serious reputation risks to your company. It is, therefore, crucial to identify PEPs as part of the VDD process, with this enabling you to transparently examine the company and any potential risks that may come with a partnership. Need help with PEP screenings and sanctions checks? We can lend a hand.
The financial status and stability of a company can quickly change, therefore, ongoing monitoring is necessary to ensure that it stays compliant over time. SmartSearch’s ongoing monitoring service utilises the Dow Jones Factiva Watchlist, which uses over 1,100 lists, to make sure your clients’ behaviour is consistent with what is expected of them when your relationship first started.
VDD won’t be necessary for every single business, but it is required for a large variety of business types. This includes:
Businesses engaging in mergers and acquisitions (M&A): Such businesses should conduct VDD to ensure that the target company meets their legal, financial, and operational expectations.
Start-up companies: Such businesses often seek partnerships and investment to get off the ground. Therefore, VDD will be necessary to make sure they are entering the proper professional relationship.
Small and medium-sized enterprises (SMEs): Similar to start-up companies, SMEs are often on the search for potential partners, making VDD a valuable and essential tool.
Businesses in regular partnerships with 3rd party service providers: This includes insurance services, technology companies, property development firms and more.
VDD should be conducted by businesses during major changes in a business relationship with an external service provider. This includes, but is not limited to:
VDD should be a straightforward process in theory, but it isn’t always as streamlined as it should be, thanks to a range of factors inside and outside of your control. Indeed, there are several challenges that make the process of VDD far trickier, including:
The Identification of Ultimate Beneficial Owners (UBOs): Identifying the UBO is essential to the VDD process, allowing you to ascertain who may gain the most from the financial malintentions of a company. But this process isn’t always quick or easy and might require extensive research.
Demanding workload: Verifying, reviewing and manually checking documents can take time and money, particularly for SMEs and start-ups.
Inaccurate company information: The information that vendors provide you may be inaccurate and out of date, making your VDD inefficient.
Cost of resources: The proper tools that can help you carry out VDD can be expensive, having a large impact on the cash flow of small businesses.
Providing a comprehensive AML solution for your business needs, at SmartSearch, you can find everything you need to carry out a robust VDD check. Affordable and easily integrated into your current way of working, we offer personalised AML solutions that are directly tailored to the needs of your business.
Contact us today to speak with one of our AML experts or book a free demo to see what our platform is like hands-on!